The interbank money market traded in single digits in
the early parts of the week. The market continued to be running long
which was reflected in the bid patter for the Treasury Bill auction
settling on the 9th of August which saw a total participation of Rs.
22.896 billion for all the three papers. It was only after the auction
that the market turned upwards and touched the 12.90% level. Borrowers
hurriedly covered themselves for one and two weeks initially at 10.50%
in both tenors, while later trades were also witnessed as high as 11.25%
and 11.75% in the respective tenors. Nominal amounts were also reported
to have been discounted on Friday.

Significant interest was evident in the T-Bill
auction as the term market having already remained depressed and repo
rates had touched significant lows. Three and six month repos had traded
at lows of 10.00% and 10.85% respectively, while the 26th July six month
T-Bill was also traded below 11.00%. As forecasted in our last write-up,
the yields on all the papers were adjusted downwards. Yields on the
three, six and twelve month papers were lowered by 27, 16 and 24 basis
points respectively. Keeping in mind the pre-auction target of Rs. 1.70
billion, the yields could have been lowered further but SBP picked up Rs.
8.80 billion with the yield on the papers at 11.18%, 11.45%, and 11.75%.
It was after this acceptance that term rates also shot upwards with
borrowers quickly picking up three month funds in repo as well in call
at levels of 10.75%. Three month rates did jump up by about 50 b.p.s.
but lenders/ buyers in the six month tenor/ paper were still willing to
levels of 11.20%.

It is quiet evident from the T-Bill auction the past
week, that SBP is not quite willing to bring rates down rather
aggressively. Pressure from the IMF, keeping in mind that a monitoring
team is due next week and the Pak rupee still reflecting signs of
weakness, SBP would be maintaining the yields on its T-Bills in the band
of 11.00% and 12.00%. Furthermore we fell that current auction yields
would continue to attract buyers that are already willing in the
secondary market as well.